Sichuan Gusto

It's hardly a household name, but Dongfang Electric makes power-generation equipment that lights up hundreds of millions of households and businesses around the world. For the past five years it has produced more boilers, turbines and generators than any other company in the world.

Nearly half of Dongfang's new orders last year came from thermal equipment, especially new coal-fired systems that are cleaner than the old gear still befouling China's skies. The company leads in China's burgeoning nuclear industry, which generated 25% of its business. It has 26 nuclear orders in hand, the most of any company worldwide. Wind equipment accounted for 14% of Dongfang's new orders, putting the company among China's top three producers and seventh globally (see sidebar, "Winds of Change"). Another 5% of orders was hydroelectric equipment. Dongfang supplies the Three Gorges Dam and other projects throughout Asia, Africa and the Americas--including many (such as Ethiopia's Gibe III dam) that are staunchly opposed by environmentalists and local communities.

With $4.8 billion in sales last year and 20,000 employees, the company is capitalizing on the huge power demand in not just China but also India, where suppliers can't fill enough orders, especially at Dongfang's speed and lean prices. Dongfang has sold its equipment in more than 20 countries, competing with the likes of Bharat Heavy Electricals, Doosan Heavy Industries,
General Electric
,
Mitsubishi Heavy Industries
and
Siemens
. More than 25% of its business is overseas. Its stock has been listed on the Shanghai and Hong Kong exchanges since the mid-1990s, but the biggest shareholder, at 50.1%, is a holding company fully owned by China's State-owned Assets Supervision and Administration Commission, a State Council body that runs more than 100 big enterprises.

The commission must be happy if it follows Dongfang's share price. For the first eight months of the year it outperformed the Hang Seng China Enterprise Index by 40%, according to
Morgan Stanley
Research. "With a leading position in nuclear and wind power and high market share in large hydropower projects, we view Dongfang as the best way to play China's new energy story," writes Morgan Stanley's Hong Kong-based analyst Helen Wen. No surprise, then, that Dongfang makes the Fab 50 this year; last year FORBES ASIA placed it on the Waiting in the Wings list--meaning that it was a strong contender to join the elite ranks soon.

Dongfang Electric has come a long way from its beginnings as a collective enterprise established in 1966 in China's western province of Sichuan. It was an unlikely location, given its distance from the nation's coastal economic centers or even from the waterways needed to transport its massive products. But Beijing officials chose the landlocked site for strategic reasons. At the height of the Cold War, mountain-ringed Sichuan was deemed safe from attack, and thus safe for building back-up capacity in critical industries.

But Sichuan had its own risks, as Dongfang executives learned in 2008. Wen Shugang, the president, had gathered his colleagues for an afternoon meeting on the top floor of their office tower in Chengdu, Sichuan's capital. As they sat around a table talking, the table began to shake--followed by the whole building. "It seemed to go on for five minutes," Wen says of the May 12 earthquake, which did last as long as 2 minutes.

Wen was relieved that no one was injured in the offices. But on calling Dongfang's main factory, a steam turbine workshop 75 kilometers away, he found that all lines, even mobile networks, were down. Wen and his colleagues jumped in a car. "We got there around six in the evening. The epicenter was close, so I knew it would be bad, but this was a shock." Dongfang's vast compound, comprising dozens of factory buildings, offices, apartment towers, schools, a hospital--a small city that stretched halfway around a mountainside--was all but destroyed.

Wen and thousands of employees and volunteers searched for signs of life under the rubble. Tending to trapped victims around the clock, they were still finding survivors four days later. The quake had flattened many structures, including Dongfang's middle-school building, where hundreds of children had been in class. "I did not cry at the time. There was no time for it," says Wen. "That was much later, when I was alone, watching reports on TV."

The disaster hit Dongfang Electric harder than any other company in China. Many buildings in the compound dated from the 1960s, before quakeproofing was mandated. Some 600 employees and family members died. Another 1,000 were injured. It was China's deadliest earthquake in 32 years, claiming more than 70,000 lives.

After saving people, Wen and his team turned to saving their business. Dongfang had a vast order book, and the turbine factory handled 20% of the company's production by value. "We could not just cry, 'Force majeure!' That's not our way. We had to take care of our customers," says Wen. Employees recovered machinery, computers and documentation, moving them to the company's almost unscathed factory in Deyang City near Chengdu, where production resumed just five days later. With staff working seven days a week over the next several months, the turbine division managed to meet 80% of its production target by year's end. Yet the company lost nearly $700 million from the quake. The government stepped in with an equity injection and other assistance to help Dongfang recover.

Just weeks after the quake, on Aug. 1 Wen and colleagues broke ground for a new turbine factory in Deyang. The compound officially opened on the quake's second anniversary this year. (Ruins of the old site will be preserved as part of a memorial museum.) Dongfang not only rebuilt, but revamped. Wen says the factory is the world's most advanced in the power turbine industry, equipped with the latest automated tools from Europe and Japan. At 200 hectares, it is also the largest, with 19 workshops, each large enough to hold two or three jumbo jets. An onsite railway leads to Dongfang's own heavy-duty river port in Leshan, on a Yangtze tributary.

Dongfang retooled to keep up with surging demand for low-carbon power. The new plant makes wind electric turbines, which are a key part of national plans to generate 15% of power from nonhydro renewable sources by 2020. The factory also specializes in new thermal turbines for cleaner coal-burning plants, which are replacing small outdated coal plants. The workshop makes other turbines for nuclear systems.

Outside of China, Dongfang won $2.1 billion in orders in 2009, one-fourth of the company's total new orders of $8.3 billion. Its markets abroad have included Indonesia, Vietnam, Malaysia, Pakistan, Turkey, Iran, Brazil, Peru and the U.S. It's especially strong in Asia's other big dynamic energy market. India commissioned 34 power projects last year, totaling 9.5 gigawatts, mostly coal-fired, and roughly one-third of the equipment will come from Chinese suppliers, including Dongfang.

But this influx of Chinese equipment has led to friction. Since 2008 Indian equipment makers have played up quality complaints about Chinese firms. The Central Electricity Authority conducted an audit of Chinese suppliers, but with inconclusive results, according to industry media reports. Power producers, on the other hand, have defended Chinese product quality and prices, saying that local equipment makers such as Bharat Heavy Electricals (also a Fab 50 member) have been booked to capacity and unable to fill new orders. For its part, Dongfang is setting up an Indian subsidiary to bolster its parts supply and service there.

Dongfang beat its domestic rivals to overseas markets, starting with a coal-fired plant in Pakistan in 1989. It was also the first Chinese power-equipment company to land a major engineering, procurement and construction contract in India, in 2004. Zhou Jie, deputy general manager of the company's international thermal division, says Dongfang went abroad first because it had to fight harder for business than its elder siblings, Shanghai Electric and
Harbin Electric
, which were closer to Beijing and better connected. During Dongfang's first two decades, when all orders came from the government under China's central planning system, the company was third in line. "The big orders went to them, so from the beginning we always had to improve ourselves. We went overseas because we knew we could not rely only on the government," says Zhou.

While a provincial outlook tends to hamstring inland companies, Dongfang's culture was national from the start, according to Zhou. When the government set up the company, it brought in personnel from Shanghai Electric and Harbin Electric. Dongfang recruits technicians and managers nationwide, and conducts business in Mandarin, not the Sichuan dialect. Yet the company gains an economic edge from labor and business costs that are lower than in the eastern regions. A less tangible boost comes from the hardy Sichuan spirit, according to Wen, a Chengdu native himself. "People here are optimistic and strong. Even when facing a big problem like the earthquake, they did not give up," he says.

Dongfang fully recovered from the quake in 2009, so Wen is now set on beefing up research and development, which stood at just 3.5% of revenue last year. "We are not strong enough on this point yet," he concedes. The company established an r&d center in Chengdu in 2007. So far Dongfang has followed the path trod by Japanese and Korean outfits in decades past. It first links up with a foreign partner that licenses its older technologies. After learning those systems, Dongfang works on enhancing them. Then it innovates on its own. The company is strong on manufacturing technology, so its research focuses on new products. Among its many tech partners are
Hitachi
, Siemens and Westinghouse in thermal and
Areva
in nuclear.

One new field it's targeting is smart-grid technology, which is needed to help China make effective use of wind farms and solar projects. "Dongfang aims to be very special in the energy field, as a green power equipment producer," says Wen. "We want to create value for customers and investors. Everybody is running, but we should run faster."